Divorcing your business partner? Know your options

It is fairly common for married couples to jointly own a business together. In fact, there are approximately three million such businesses throughout the United States. Unfortunately, nearly half of all first marriages, and even more second and third marriages, end in divorce. When co-owners of a business decide to end their marriage, it can significantly complicate the divorce process, especially in terms of property division.

Experts recommend that married business owners protect their interests by including buy-sell arrangements and provisions for property division in a prenuptial agreement before they wed. However, this may not be practical in some situations. For example, a couple may not decide to go into business together until after they have married.

Nevertheless, even if you do not have a prenuptial agreement in place, you still have options available for dividing the business in the divorce.

Selling the business

This is typically not the first recommended course of action. It is usually only advisable if all other attempts to work out a divorce agreement with your spouse have failed. As a last resort, however, you and your spouse can sell the business and split the profits evenly between you per California’s community property laws.

Buying out your spouse

If you want to continue running the business on your own after the divorce, it may be possible for you to buy out your spouse’s share. However, this can also pose a challenge if you do not have sufficient liquid assets available to cut your spouse a check. As an alternative, it may be possible to structure incremental buyout payments over a period of time.

Regardless of whether you decide to sell the business or buy out your spouse, the first step in the process is typically a professional valuation. Knowing what the business is worth allows you to negotiate a fair price in either scenario. Another option may be to continue to run the business together as partners even when you are no longer spouses. However, for many couples, that is not a reasonable expectation.